India's pharma market maintains 10% growth despite disruptions; set for 8-10% growth with price hikes, new launches, HDFC sec report

The India Pharma Market (IPM) has emerged as a strong growth story with a steady around 10% Compounded Annual Growth Rate (CAGR) over the fiscal years 2012 (FY12) to 2023 (FY23), despite various disruptions in the marketplace, revealed a report on the domestic formulation sector from stock broking company HDFC securities.

According to Mehul Sheth, Research Analyst at HDFC securities, the growth of the IPM is attributable to a volume expansion of 5-10% during FY12-18, which slowed down to 2-3% from FY19-23 due to increased generic competition.

He added that this deceleration has been partly compensated by annual price growth of 5-6% since FY19. Sheth suggested that the IPM is likely to maintain robust growth at 8-10% in the near future, with companies boasting impactful franchises and brands expected to have a rapid growth trajectory. This prognosis is based on the assumptions of sustained annual price growth of 4-5%, fortified by a slow yet steady volume growth in the sector.

Despite challenges like demonetization, the implementation of the Goods and Services Tax (GST), revisions to the National List of Essential Medicines (NLEM), the Fixed-Dose Combination (FDC) ban, and the COVID-19 pandemic, the report underlines the resilience of the domestic formulation market, which grew at a steady around 10% CAGR over the last decade.

Sheth espoused a bullish view on domestically-oriented pharmaceutical companies. "We like them due to their strong pricing power, better margins, and healthy cash reserves, which have led to a recent rerating among domestic peers," he stated. He also tagged the volume recovery in the IPM as a crucial earnings driver, essential for sustaining a premium over the Nifty index.

The report held a promising outlook for the domestic formulation sector, expecting it to maintain steady growth led by price increases, volume recovery, and the launch of new products. Sheth initiated coverage with a BUY rating for ERIS (with a Target Price (TP) of Rs1,070), and ADD ratings for ALKEM (TP of Rs 5,520), MANKIND (TP of Rs 2,360), and TRP (TP of Rs 2,970), reflecting the sector's promising prospects.

These companies have the potential for further growth in the domestic market, leading to enhanced margins. Alkem is expected to see growth recovery in India (acute segment), Mankind is on a steady growth path led by chronic scale-up, and TRP is well-positioned due to its consistent growth in branded generics (comprising over 70% of its sales, the report said.